2020 Fortitude Budget - RHB Invest 2020-05-27: More Help For Workers And Businesses

2020 Fortitude Budget - More Help For Workers And Businesses

The Government has announced an additional SGD33bn worth of measures to help Singaporean workers and businesses to not only get through the weak economic outlook, but to also transform and seize new opportunities. The budget extended jobs protection and co-payments of salaries to help firms retain workers.
For businesses, it extended the foreign worker levy waiver and rebates, as well as rental relief. Additional support was announced for the construction sector too. The Government aims to create 40,000 jobs by end 2020 and assist the local workforce with upskilling.
See attached PDF report for summary of support measures announced.

While these measures will offer additional funding support, in our view, it does not materially change the near-term weak business outlook. We remain OVERWEIGHT on REITS and prefer selective exposure to defensive stocks.

We believe the announced enhancements to the Jobs Support Scheme (JSS) – and other measures to ensure firms can retain workers – should help banks mitigate the decline in consumer loans asset quality. The extension of the foreign worker levy waiver and rental relief for small & medium enterprises (SMEs) should help contain the rise in business loan NPLs.
We maintain that loan loss provisioning will remain a key concern for the banks. These government measures should help to mitigate some deterioration in asset quality.
The banking sector is NEUTRAL rated. OCBC (SGX:O39) is our preferred NEUTRAL-rated bank due to its highest CET1 capital adequacy ratio amongst peers and higher loan share to Greater China. Resumption of economic activities in China ahead of ASEAN is a positive. See recent report: Singapore Banks - RHB Invest 2020-05-18: Rowing Against The Rising Provisions Tide.

The budget offered additional cash grants of SGD2bn to help qualifying SME tenants with rental costs. This, along with the property tax rebates announced earlier, will see the Government offset two months of rent for qualifying SME retail tenants and one month of rent for industrial and office tenants. The enhanced JSS should also help in defraying manpower costs.
We maintain OVERWEIGHT on REITs, with industrial and office our preferred sub-sectors.
Despite the short-term support, retail REITs will be impacted by the structural changes arising from COVID-19. It remains our least preferred sub-sector.
Top Picks: Suntec REIT (SGX:T82U), Manulife US REIT (SGX:BTOU), Keppel Pacific Oak US REIT (SGX:CMOU), and IREIT Global (SGX:UD1U).
See recent reports:
See also recent S-REIT report: Singapore REITs - RHB Invest 2020-04-23: Standing The Test Of Time; Keep OVERWEIGHT.
Keppel Pacific Oak US REIT (SGX:CMOU), and IREIT Global (SGX:UD1U) are also among the companies highlighted in RHB's Top Singapore Small Cap Companies - 20 Jewels 2020 Edition.

The JSS’ extension, support for rental costs through cash grants given to SME tenants in private estates, and landlords now being mandated to pass on property tax rebates to tenants should provide better near-term support to the retail industry. Businesses located in government-owned/managed premises will receive two additional months of rent waivers.
For stocks under our coverage, we estimate Sheng Siong (SGX:OV8) and Jumbo Group (SGX:42R) seeing c.SGD3m and c.SGD1m in costs support.
We remain NEUTRAL on the sector, with Sheng Siong (SGX:OV8) as the preferred pick.